Why Do Recruitment Agencies Have High Staff Churn Rates?
Staff churn is basically how many employees leave and are hired during a period of time. It can also be called “Employee Churn” or “Employee Turnover Rate”.
“Employee turnover is the measurement of how long your employees stay with your company and how often you have to replace them.”
As we all know, the recruitment agency industry is high turnover. Results from 121 AU/NZ agencies showed that the churn rate was at an all-time high in 2017.
- 48% in Australia April 2017
- 43% in Australia September 2017
Staff churn for New Zealand in 2017 skyrocketed as well.
In the UK the average turnover rate for any industry is 15%. For the recruitment industry? 43%.
So this isn’t just an Australian and New Zealand phenomenon.
Why do recruitment agencies have a high staff churn compared to other industries? Here are 3 factors that have an influence, and solutions to address them.
1. Poor Employee Selection
Selecting the wrong employees for your business can have disastrous results. Regardless of industry. When Facebook bought Instagram for $1 Billion in 2013 they only had 13 employees. You can understand just how important employee selection for them was.
This is true for all businesses.
Just how much does hiring the wrong person cost a business?
CEO of Zappos Tony Hsieh estimated poor employee selection cost his business $100+ Million. That’s a hefty expense for a company that generated $537 Million in revenue last year.
There’s plenty more examples of the steep price of not choosing staff wisely. It costs the average Australian business (100+ employees) $337,000 per year. That is a lot of money wasted.
Why is it so expensive to select the wrong employee? Because it costs a lot to adequately train and prepare the right candidate for the job. Here’s a great infographic from Reesomay detailing the net costs of employee expense and value added.
The key concept to take away is employee investment vs value of contribution. There are more expenses than just the salary.
Knowing that the staff turnover/churn is very high in the recruitment industry, it would not be a stretch to suggest poor employee selection impact is heightened. After all, a recruitment agency is hired to find the best, most suitable candidates. The agency needs to make sure those doing that, are themselves, the best candidates.
Finding the right person for the job is not easy. This is why the recruitment industry exists in the first place. Ironic that the task they are hired to do, is one they must address themselves. Much like marketing agencies.
So what are some methods or solutions that can be implemented? What measures/screening processes can we utilize?
It’s important to have a structure to your interview process. You’d be surprised at how many interviewers neglect this. Asking a certain set of questions to help assess and screen candidates. Asking these questions in a particular sequence.
Research has shown that structured interviews yield better outcomes. A 2010 paper on the topic came to this conclusion.
“Of all the findings in the interview research literature, perhaps the most consistent and practically meaningful is the effect of structure. Several meta-analyses have collapsed results across a large number of interviews (often hundreds), and they consistently find that ratings from structured interviews have a much stronger association with job performance than ratings from more traditional interviews”
It is clear. Interview structure is important.
But what questions should you ask?
The literature suggests to use a combination of “situational questions” and “behavioral questions”.
Situational Questions: Future-oriented question that puts forth a hypothetical scenario, to see how the interviewee acts/responds.
Example: “A customer has a query to which you do not know the answer. Who do you ask for help?”
Behavioral Questions: Past-oriented question that looks at how the interviewee responded to situations that are relevant to the job.
Example: “Give me an example of a time when you set a goal and were able to meet or achieve it”
Other types of questions include background questions (work experience/education/qualifications) and industry knowledge questions.
A behavioral question that looks to see how he/she addressed the problem. Past scenarios provide a good way for employers to gauge how a candidate might fit.
This question seeks to find out what candidates think of the “chain of command” concept. An important question in my opinion.
This is a combination of a behavioral type of question, and industry specific knowledge. It is a great way to gauge for their interest and knowledge in your market/niche and how it might be applicable to the job.
A situational question variation that helps the interviewer find out the candidates, goals and motives specific to employment and the job.
Looks for the candidates opinion on success measures and metrics. This is an important question to ask. A candidates effort in a job can vary depending on their opinion of what success is.
An interview question that looks at how the candidate views pay and reward systems.
Another behavioral question that seeks to understand what the candidate thinks about management, chain of command and authority. A good question to ask to screen for red flags.
Interviews are a standard part of looking for the right candidate for a job. Make sure you structure your interview process, as well as ask the right question. This will help your recruitment agency find better employees to address a high turnover industry.
2. Unreasonable Expectations
Unrealistic expectations placed upon employees can absolutely lead to them leaving and seeking employment elsewhere. According to international recruitment agency Robert Half, unreasonable expectations can have dire consequences for businesses and agencies.
Unrealistic expectations can harm the quality of work produced, creating unnecessary pressure to deliver. To meet these expectations, they will rush work, cut corners, underdeliver to meet the deadline.
When the expectations are not realistic, do not be surprised if expenses exceed budget. Without a solid achievable framework in place, it will be hard to accurately predict project expenses. Forcing employees to work overtime can dampen spirits, and cost the business more.
Without a realistic plan in place with achievable goals, work is going to often come in late and underdelivering on quality. Overdue work will cause employees to work overtime, cutting into their personal lives.
The increased pressure of heightened unrealistic expectations can wear down the health and wellbeing of workers. It’s only natural that this will result in more “sick days”. This is not a healthy culture, when the expectations are too dramatic and employees would rather stay at home.
If unrealistic expectations are constantly causing the workforce to underdeliver, over time the goal setting bar will lower. Employees don’t want to feel like they are inadequate, like they’re not getting the job done.
Constantly putting employees under the gun, unfairly so, can only create a negative office culture. The workforce likes to meet expectations, it makes them feel valuable. Setting them up for failure by having unrealistic, unreasonable expectations will only leave a sour taste in their mouth. Incompetence breeds negativity.
The employee morale is really the focus. How the individual feels about their job always affects a decision to leave. Unrealistic expectations absolutely zaps employee morale. Drains it. Just as achieving goals set at work boosts employee self esteem, the opposite is true.
Here are some ways to combat the adverse effects of unreasonable expectations that might lead to staff churn.
Instead of putting the burden of unrealistic expectations onto your employees, empower them. Build them up, not break them down. Get their confidence rolling, and they’ll reach heights they didn’t know they had it in themselves.
Some specific strategies may include giving a voice to the workers during meetings. Get their feedback. It will tell you how they feel, and where everything stands.
Confusion only adds to the burden of unreasonable, unrealistic expectations. It’s important to be very precise, specific on the deliverables. Let your staff know exactly what is being asked of them. Let them know exactly what they need to do.
How can we specifically implement a strategy to be clear on expectations?
A study from Dr. Gail Matthews looked at the empirical effectiveness of goal setting methods. She found that writing down, and making the goal accountable produced successful results. Here’s what she concluded from the research.
“Those who sent weekly progress reports to their friend accomplished significantly more…”
“Those who sent their commitments to a friend accomplished significantly more…”
“Those who wrote their goals accomplished significantly more…”
You can use the SMART framework to set effective goals for your workforce. It adheres to the findings from the study above.
Here’s an example for a recruitment agency.
Specific – Decrease the new hire failure rate to a more respectable, industry standard.
Measureable – A 10% decrease from 60% to 50%.
Achievable – It is attainable. Our 60% new hire failure rate is considerably high, well above average.
Realistic – It is a realistic goal. Achieving an industry standard new hire failure rate is absolutely realistic.
Time – Goal expected to be reached after a full year. Will give enough time to implement new strategy, tactics and changes.
A simple, effect, proven goal-setting template that gets results. Strategic, empirical evidence-backed goal setting is how you can tackle unreasonable expectations.
3. High Quality Pay And Reward Systems
Pay/reward systems in the workplace is not a new concept. The concept was originally based off of behavioral research from psychologists in the early 1900’s The purpose of the system is to enhance employee productivity by boosting morale. It is called Reward Management.
There is plenty of research out there showing the positive employee benefits of a pay and reward system. It incentives hard work. Boosts employee morale. It is an effective way to build positive rapport with your staff.
Without some form of reward management system, you will increase staff churn.
This 2005 study on the topic came to this conclusion.
“Our survey results demonstrate a positive relationship between the perceived characteristics of the complete compensation system and extrinsic motivation”
When your employees are more motivated, they will work harder. They will get better results. They will be less likely to seek other opportunities. Less likely to leave.
Here’s another 2006 study that found both financial and non-financial incentives improved several business unit outcomes. These included;
- Improved Profitability
- Improved Customer Service
- Lower Employee Turnover
There are all sorts of management reward systems that have been used. Some with purely monetary incentives, other with non-monetary, and some with both.
- Performance Pay
- Talent Management
- Career Opportunities
- Work/Life Balance
- Workplace Social Activities
It’s clear just how much of an impact an employee pay and rewards system can have. So what specifically is the best system to implement?
The best system is dependant on your what your business is. The best strategy for a recruitment agency is going to be different for a retail store. It really depends on the nature of the business, and what the job asks of the employee.
Despite the popularity of reward management strategies, it is surprising to note a lack of systematic evaluation on the topic.
What we can do, is look at case studies of businesses who successfully implemented reward management systems.
An American Midwest manufacturer of gourmet foods like olive oil, jams and sauces decided to implement a reward management system. They put in place a system that offered flexible work schedules, and a pay system that incentivized teamwork and accountability.
Here’s a summary from a 2002 book on this case study.
“Rothschild Gourmet Foods uses team pay with a goal-sharing plan. Funding for the plan comes from the achievement of goals in costs, quality and sales areas. Distribution of the funds is based on ratings of individual performance”
- Increased Sales
- Increased Product Quality
- Decreased Expenses
- Increased Employee Appraisal + Morale
ElectriCo is a Sri Lankan state-owned enterprise that utilized a rewards management system. They implemented a system that combined both monetary and non-financial incentives for employees.
A 2014 study analyzed ElectriCo’s reward management plan. They found significant correlations.
“Overall findings showed that there is a significant and positive relationship between various intrinsic rewards and employee performance.”
These intrinsic rewards were classified as such;
- Career Advancement
- Learning Opportunity
While the extrinsic rewards were listed as;
The findings were also positive for extrinsic rewards.
“Most employees in ElectriCo prefer monetary rewards… A positive relationship between extrinsic rewards and employee performance”
When employees perform better, businesses perform better.
McDonalds use a rewards program based on employee performance. The program has both monetary and non-financial incentives.
Here’s a quote from McDonalds Chief People Officer Cathy Doyle.
“We aim to provide our people with recognition that’s relevant to them – sometimes that means it’s an opportunity to attend a conference with another crew, or other times it’s a new role, an awards, or training opportunities.”
The monetary incentives include;
- Competitive Pay
- Attendance Allowance
- Annual Allowance
- Medical Allowance
- Leave Fair Allowance
The non-financial incentives include;
- Flexible Work Schedules
- Training Opportunities
- Recognition Awards
What do McDonalds employees think of the rewards program? Professor Adrian Furnham was hired to do a survey.
- 77% of employees agree that the pay and benefits are competitive.
- 80% feel respected for their work contribution.
- 85% are satisfied with their personal growth and development opportunities
The employees are clearly satisfied with the reward management program. As we know, employee morale is strongly correlated with why employees leave.
The recruitment industry is known for high staff turnover. This is not groundbreaking news. The inherent nature of being paid to recruit people most likely makes employees aware of other work opportunities. It is just a volatile industry.
There are however, factors that might cause turnover to high. Factors that agencies can address.
Implementing proper evidence-based interviews to screen for candidates. you can address poor employee selection.
Creating goals and expectations in a way that is clear and effective. You can avoid unrealistic, unreasonable expectations placing undue stress on your workforce.
Putting in place a reward management system with both monetary and non-financial incentives. It is a great way to boost employee morale.
Doing these things can go a long way to decreasing staff churn/turnover.